Interim Condensed Financial Report 31 March 2015

Transcription

1 Interim Condensed Financial Report 31 March 2015

2 Interim Condensed Financial Report 31 March 2015 Contents Page Board of director s report 3-4 Review report of the independent auditors 5 Summary of unaudited results 6 Unaudited interim condensed statement of profit or loss and other comprehensive income 7 Unaudited interim condensed statement of financial position 8 Unaudited interim condensed statement of changes in equity 9 Unaudited interim condensed statement of cash flows 10 Notes to the interim condensed financial statements Presentation of information This document comprises the Interim Condensed Financial Report 31 March 2015 for HSBC Bank Oman S.A.O.G. ( HBON ) ( the Bank ). It contains Unaudited Interim Condensed Financial Statements, together with the Board of Directors Report, the Auditor s review report and the Summary of Unaudited Results. 2

3 Board of Directors Report for the three months ended 31 March 2015 Dear Shareholders, On behalf of the Board of Directors, I am pleased to present your bank s first quarter financial results for We have seen a strong start to the year with solid performances in both the retail and corporate sectors, with net profit showing a 22.6% increase over the first quarter of We remain focused on our strategic objectives of growing revenue, streamlining our processes and procedures and implementing the highest global standards within a framework of delivering excellence in customer service at all times. Performance Summary Our first quarter performance shows a 22.6% increase in net profit of RO3.8m compared to RO3.1m for the same period in 2014, due to an increase in net operating income before loan impairment charges. Net operating income before loan impairment charges increased by 15.5% to RO18.6m compared to RO16.1m for the same period last year due to higher net interest income, net fee income and other operating income. Net interest income increased by 5.2% to RO12.1m for the period ended 31 March 2015, up from RO11.5m for the same period in 2014, due to an increase in corporate loans and advances. Net fee income increased by 37.5% to RO3.3m in comparison to RO2.4m for the period ended 31 March 2014 due to higher commitment and facility fees from corporate customers. Other operating income has been reported of RO1.5m for the period ended 31 March 2015 compared to RO0.02m for the same period in 2014 due to booking a gain on sale of HBON s India operations of RO0.8m (net of tax) and a gain on sale of investments of RO0.7m. A net charge of RO0.8m has been reported for loan impairment charges mainly from retail specific provision of RO0.6m and a corporate general provision charge of RO0.6m from an increase in corporate loans and advances, partly offset by a recovery of RO0.5m from corporate customers, compared to a net charge of RO0.2m for the same period in Operating expenses increased by 8.1% to R13.3m compared to RO12.3m for the same period in 2014 due to the combined effect of one off expense reversals in the prior year and current year increase of operating expenses. Loans and advances net of provisions and reserved interest as at 31 March 2015 increased by 20.5% to RO1,226.0m compared to RO1,017.1m as at 31 March 2014 due to an increase in corporate loans and advances. Customer deposits marginally decreased by 0.1% to RO1,945.4m compared to RO1,948.1m as at 31 March HBON s Capital Adequacy ratio stood at 17.8% as at 31 March 2015 compared to 19.8% as at 31 March 2014, representing a continuing strong capital base for future growth. Delivering the best customer experience In Retail Banking and Wealth Management we began the year on a positive note with the launch of a multiproduct and multi-proposition campaign The Big Start. In addition to highlighting the benefits of our personal lending and cards product ranges, the campaign continued to drive good acquisition levels in our key customer segments of Premier and Advance. In January, we also announced the winners of the RO1 million Mandoos Grand Prize draw and launched the 2015 Mandoos prize scheme. Building on our comments at the recent Annual General Meeting, we continued to enhance our comprehensive digital banking proposition and released an updated version of our Mobile Banking application, as well as extended our fleet of ATMs. We also launched a targeted campaign across some of our branches Digital Week - to spread awareness of the Bank s extensive digital banking services. In Commercial Banking, we continued to enhance our local capabilities leveraging our HSBC regional and global connectivity. Reflecting our ongoing commitment to SMEs in Oman, we conducted the second of our quarterly Growth Series events, on the theme of Get more out of your working capital. We continue to support the international and internationally aspirant SMEs in Oman through the International Growth Fund launched last year. 3

4 Our Operations in India We were pleased to confirm that on 31 March 2015, HSBC Bank Oman completed the sale of its two branches in India to Doha Bank. The financial impact of this sale had no material impact on the overall performance of the Bank. Investing in our people and the community Our commitment to identifying and developing local talent was further demonstrated this year by the alliance we entered into with the College of Banking and Financial Studies to roll out a year-long Branch Manager Certification Programme. The comprehensive programme includes a blend of modules on key areas of Leadership Development and best practices in Retail Banking. We rolled out a comprehensive Onboarding program for new joiners to ensure they have a world-class experience and are trained on all required global and local mandatory e-learning programmes within the first 30 days. Committed to the development of our employees leadership capabilities, we have been in partnership with Outward Bound to help staff discover their potential. This year a team of six HSBC Bank Oman employees completed Outward Bound Oman s week-long expedition crossing 140 kilometres from Duqum to Fahud in commemoration of the 44th National Day. Continuing our partnership with the British Council and the Ministry of Education, two Kids Read events were held during the quarter. Now in our 5th year of sponsorship, Kids Read encourages children to read for pleasure and coaches parents on techniques that can be used while reading to their children at home. More than 90 staff members observed the Earth Hour s Light Out initiative when the Bank s head office lights were switched off for an hour on March 28th. Moreover, in collaboration with the Ministry of Health, we launched an environmentally focused initiative under which staff volunteers planted trees in health centres in Muscat, Sohar and Salalah. Building on our Special Educational Needs (SEN) training programme for teachers, under which 150 Government schools teachers received on-line training, a team of specialists from the United Kingdom visited Oman to deliver a series of SEN workshops to teachers across the Sultanate s schools. The specialists visits aimed to provide SEN guidance in the areas of classroom behaviour as a mode of communication, as well as providing help regarding education and mental health with emphasis on Dyslexia and Autism Spectrum Disorders. Conclusion On behalf of the Board of Directors, I would like to thank all of our customers, staff and management for their steadfast commitment and dedication. Special thanks also go to the Central Bank of Oman and the Capital Market Authority for their continued support and guidance. I am pleased to acknowledge the safe return of His Majesty Sultan Qaboos bin Said, and congratulate the people of Oman on this momentous occasion. We continue to offer our full support as His Majesty continues to lead the Sultanate to further prosperity and development. David Eldon Chairman 4

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6 Summary of unaudited results for the three months period ended 31 March March March 2014 RO 000 RO 000 Change % Loans and advances net of provisions and reserved interest 1,226,047 1,017, Customer deposits 1,945,364 1,948,142 (0.14) Net assets 302, , * Net assets per share Three months Three months period ended period ended Change % 31 March March 2014 RO 000 RO 000 Net interest income 12,081 11, Net profit for the period 3,780 3, ** Earnings per share (annualised) *** Capital adequacy ratio (CAR) 17.82% 19.82% (2.0) * Net assets (book value) per share is calculated by dividing the net assets (book value) at 31 March by the number of ordinary shares in issue at 31 March. ** Earnings per share (annualised) has been calculated by dividing the net profit after tax attributable to ordinary shareholders for the period ended 31 March by the average number of ordinary shares in issue for the period. ***Capital adequacy ratio has been calculated in accordance with the Basel Capital Adequacy Accord. The ratio represents the ratio of risk weighted assets to capital. 6

7 Unaudited interim condensed statement of profit or loss and other comprehensive income for the three months period ended 31 March 2015 Three months ended 31 March 2015 Three months ended 31 March 2014 Notes RO 000 RO 000 Interest income 5 14,017 13,109 Interest expense 6 (1,936) (1,609) Net interest income 12,081 11,500 Net fee income 3,300 2,426 Net exchange income 1,574 1,642 Dividend income Other operating income 7 1, Net operating income before loan impairment charges and other credit risk provisions 18,641 16,120 Loan impairment (charges) and other credit risk provisions - net of recoveries 8 (809) (231) Net operating income 17,832 15,889 Operating expenses 9 (12,739) (11,691) Amortisation of intangible assets 10 (571) (571) Total operating expenses (13,310) (12,262) Profit before tax 4,522 3,627 Tax expense (742) (540) Profit for the period 3,780 3,087 Other comprehensive income / (expense) Items that will be reclassified subsequently to profit or loss when specific conditions are met Available-for-sale investment Fair value gain Fair value gain reclassified to profit or loss (646) - Income tax 49 (4) (561) 272 Exchange differences Foreign exchange loss reclassified to profit or loss on disposal of India operations Effect of currency translation Other comprehensive income / (expense) for the period net of tax (281) 304 Total comprehensive income for the period 3,499 3,391 Earnings per share - basic (RO) The accompanying notes on pages 11 to 28 form an integral part of these interim condensed financial statements. 7

8 Unaudited interim condensed statement of financial position as at 31 March 2015 At 31 March 2015 At 31 March 2014 Audited At 31 December 2014 Notes Assets Cash and balances with central banks 271, , ,007 Due from banks 202, , ,902 Loans and advances to customers - net 12 1,226,047 1,017,146 1,161,313 Financial investments , , ,151 Other assets 14 38,669 73,578 39,433 Intangible assets 15 9,523 11,808 10,094 Property and equipment 16 27,698 30,602 30,012 Total assets 2,344,353 2,367,204 2,242,912 Liabilities and equity Liabilities Due to banks 32,763 27,185 29,966 Deposits from customers 17 1,945,364 1,948,142 1,852,339 Other liabilities 18 63,874 90,243 50,730 Total liabilities 2,042,001 2,065,570 1,933,035 Equity Share capital , , ,031 Legal reserve 24(a) 34,984 33,759 34,984 Statutory reserve 24(b) - 1,534 1,446 Available-for-sale fair value reserve 24(c) 4,036 5,338 4,597 Foreign exchange reserve 24(d) (240) - (497) Retained earnings 63,541 60,972 69,316 Total equity 302, , ,877 Total equity and liabilities 2,344,353 2,367,204 2,242,912 Net assets per share - RO Off-balance sheet items: Contingent liabilities and commitments - Documentary credits 97,980 94, ,283 - Guarantees 363, , ,329 - Others ,041 1,419,981 1,147,461 1,451,943 1,789,407 1,585,073 The accompanying notes on pages 11 to 28 form an integral part of these interim condensed financial statements. The interim condensed financial statements were authorised for issue on 27 April 2015 in accordance with the resolution of the Board of Directors. David Eldon Chairman 8 Andrew Long Chief Executive Officer

9 Unaudited interim condensed statement of changes in equity for the three months period ended 31 March 2015 Share capital Legal reserve Statutory reserve Available-forsale fair value reserve Foreign exchange reserve Retained profits Total RO 000 At 1 January ,031 33,759 1,486 5,066-65, ,847 Total comprehensive income for the period Profit for the period ,087 3,087 Other comprehensive income / (expenses) for the period Effect of currency translation (16) 32 Net movement in fair value of available-for-sale investments (net of tax) Total other comprehensive income for the period (16) 304 Total comprehensive income for the period ,071 3,391 Transaction with shareholders, recorded directly in equity Dividend paid for (7,604) (7,604) At 31 March ,031 33,759 1,534 5,338-60, ,634 At 1 January ,031 34,984 1,446 4,597 (497) 69, ,877 Total comprehensive income for the period Profit for the period ,780 3,780 Other comprehensive income / (expenses) for the period Exchange differences Net movement in fair value of available-for-sale investments (net of tax) (561) - - (561) Total other comprehensive income for the period (561) (281) Total comprehensive income for the period (561) 257 3,780 3,499 Transfer to retained profits on sale of India operations - - (1,469) - - 1, (1,446) (561) 257 5,249 3,499 Transaction with shareholders, recorded directly in equity Dividend paid for (11,024) (11,024) At 31 March ,031 34,984-4,036 (240) 63, ,352 The accompanying notes on pages 11 to 28 form an integral part of these interim condensed financial statements 9

10 Unaudited interim condensed statement of cash flows for the three months period ended 31 March 2015 Three months ended 31 March 2015 Three months ended 31 March 2014 Notes RO 000 RO 000 Cash flows from operating activities Profit before tax 4,522 3,627 Adjustments for: non-cash items included in profit before tax 1,124 1,246 change in operating assets (65,117) (48,766) change in operating liabilities 114, ,116 tax paid (915) (218) Net cash generated from operating activities 54, ,005 Cash flows from investing activities Purchase of financial investments (1,837,764) (1,931,881) Proceeds from maturity of financial investments 1,933,773 1,981,036 Purchase of property and equipment 16 (479) (211) Cash out flow from sale of India operation, net of cash and cash equivalents (2,544) - Net cash generated from investing activities 92,986 48,944 Cash flows from financing activity Dividends paid (11,024) (7,604) Net cash used in financing activity (11,024) (7,604) Net change in cash and cash equivalents 136, ,345 Cash and cash equivalents at the beginning of the period 290, ,224 Cash and cash equivalents at the end of the period , ,569 The accompanying notes on pages 11 to 28 form an integral part of these interim condensed financial statements. 10

11 1 Legal status and activities HSBC Bank Oman S.A.O.G. ( the Bank ) is an Omani joint stock company, which was incorporated on 1 January 1979, operating as a commercial bank through a network of branches in the Sultanate of Oman and Pakistan. The registered head office of the Bank is P.O. Box 1727, CPO Seeb, Postal Code 111, Sultanate of Oman. The Bank has its shares listed on Muscat Securities Market. 2 Basis of preparation (a) Compliance with International Financial Reporting Standards The interim condensed financial statements of the Bank have been prepared in accordance with IAS 34 Interim Financial Reporting ( IAS 34 ) as issued by the International Accounting Standards Board ( IASB ), the disclosure requirements set out in the Rules for Disclosure and Proformas issued by the Capital Market Authority ( CMA ), and the Commercial Companies Law of 1974, as amended, of the Sultanate of Oman and the applicable regulations of the Central Bank of Oman ( CBO ). The audited financial statements of the Bank as at and for the year ended 31 December 2014 were prepared in accordance with International Financial Reporting Standards ( IFRSs ) as issued by the IASB, the disclosure requirements of CMA and the applicable regulations of the CBO. IFRSs comprise accounting standards issued by the IASB and its predecessor body as well as interpretations issued by the International Financial Reporting Interpretations Committee ( IFRIC ) and its predecessor body. (b) Presentation of information The functional currency of the Bank is Rials Omani ( RO ), which is also the presentation currency of the interim condensed financial statements of the Bank. (c) Comparative information These interim condensed financial statements include comparative information as required by IAS 34 and CMA. 11

12 2 Basis of preparation (continued) (d) Use of estimates and assumptions The preparation of financial information requires the use of estimates and assumptions about future conditions. The use of available information and the application of judgement are inherent in the formation of estimates; actual results in the future may differ from those reported. Management believes that the Bank s critical accounting policies where judgement is necessarily applied are those which relate to the valuation of separately identifiable assets and liabilities acquired during merger, the useful lives of intangible assets, impairment of loans and advances, the valuation of financial instruments and the impairment of available-for-sale financial assets. (e) Future accounting developments A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January None of these is expected to have a significant effect on the interim condensed financial statements of the Bank except the following set out below: IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. The mandatory application date for IFRS 9 as a whole is 1 January 2018, but it is possible to apply the revised presentation for certain liabilities measured at fair value from an earlier date. The Bank is currently assessing the impact of IFRS 9 will have on the financial statements but due to the complexity of the classification and measurement, impairment, and hedge accounting requirements and their inter-relationship, it is not possible at this stage to quantify the potential impact as at the date of the approval of these interim condensed financial statements. 3 Accounting policies The accounting policies applied by the Bank in these interim condensed financial statements are the same as those applied by the Bank in its financial statements as at and for the year ended 31 December Products and services The Bank provides a comprehensive range of banking and related financial services to its customers. Retail Banking and Wealth Management ( RBWM ) offers a broad range of products and services to meet the personal banking needs, consumer finance and wealth management needs of individual customers. Typically, customer offerings include personal banking products (current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services) and wealth management services (insurance and investment products and financial planning services). Commercial Banking ( CMB ) product offerings include the provision of receivables financing services, payments and cash management, international trade finance, treasury and capital markets, commercial cards, cash and derivatives in foreign exchange and rates, and online and direct banking offerings. Global Banking and Markets ( GB&M ) provides tailored financial solutions to government, corporate and institutional clients. The client focused business lines deliver a full range of banking capabilities including financing, advisory and transaction services; a markets business that provides services in credit, rates, foreign exchange, money markets and securities services; and principal investment activities. 12

13 5 Interest income Interest bearing assets earned interest at an overall annualized rate of 2.82% for the three months period ended 31 March 2015 (31 March %). 6 Interest expense For the three months period ended 31 March 2015, the average overall annualised cost of funds was 0.40% (31 March %). 7 Other operating income Three months period ended Three months period ended 31 March 31 March RO 000 RO 000 Gain on sale of India operations* Gain on sale of a financial investment Other income , *Sale of the HBON s banking operations in India On 16 April 2014, HBON announced an agreement to sell its banking operations in India to Doha Bank QSC ("Doha Bank"). On 31 March 2015 HBON completed the disposal at sale consideration (net of tax) of RO7.1m and recorded a gain on disposal of RO0.8m. 8 Loan impairment (charges) and other credit risk provisions - net of recoveries Three months period ended Three months period ended 31 March 31 March RO 000 RO 000 Provided during the period general (note 12) (724) (376) Provided during the period specific (note 12) (1,754) (1,518) Provisions released/written back (note 12) 1, Adjustments as a result of fair value unwind Reserved interest released Written-off loans recovered Bad debts directly written off to statement of profit or loss (137) (42) (809) (231) 13

14 9 Operating expenses Employee compensation and benefits (6,270) (5,853) General and administrative expenses* (5,951) (5,335) Depreciation of property and equipment (518) (503) (12,739) (11,691) * *General and administrative expenses for the current period include the RO0.3m of Mandoos Prize draw expenses (31 March 2014: RO0.4m) 10 Amortisation of intangible assets This represents amortisation of intangible assets as result of business combination accounted for as follows : 11 Earnings per share basic Three months period ended Three months period ended 31 March 31 March RO 000 RO 000 Three months period ended Three months period ended 31 March 31 March RO 000 RO 000 Core deposits (440) (440) Customer relationships (131) (131) (571) (571) Earnings per share basic is calculated by dividing the profit attributable to the shareholders by the weighted average number of shares in issue, as follows: Three months period ended Three months period ended For the year ended Weighted average number of shares in issue ( 000) 2,000,312 2,000,312 2,000,312 Net profit for the period (RO 000) 3,780 3,087 12,249 Earnings per share basic annualised (RO)

15 12 Loans and advances to customers - net To comply with the CBO regulations, the table below includes the provision for loan impairment on loans acquired in the business combination. Overdrafts 93,249 87,387 79,453 Loans 1,189, ,605 1,138,184 Bills discounted / purchased 42,957 36,329 43,522 Gross loans and advances 1,326,125 1,120,321 1,261,159 Provision for loan impairment - specific (34,829) (36,657) (36,192) Provision for loan impairment - general (16,601) (14,612) (15,880) Reserved interest (48,648) (51,906) (47,774) Net loans and advances 1,226,047 1,017,146 1,161,313 The interest rate bands of gross loans and advances to customers are as follows: 0-5% 741, , , % 372, , , % 147, , , % 49,269 45,529 52,134 more than 13% 15,531 13,336 13,872 1,326,125 1,120,321 1,261,159 Maturity analysis of net loans and advances to customers as per CBO circular BM 955 is as follows: 0-6 months 417, , , months 24,377 23,569 20, years 79,661 78,312 76, years 204, , ,931 More than 5 years 499, , ,254 1,226,047 1,017,146 1,161,313 15

16 12 Loans and advances to customers - net (continued) Concentration of loans and advances: Loans and advances to customers by industry sector Personal and consumer loans 460, , ,808 Corporate and commercial Import trade 165, , ,422 Construction 82,419 48,663 82,496 Manufacturing 202, , ,345 Wholesale and retail trade 41,269 37,761 39,678 Export trade 6,520 20,942 7,494 Electricity, gas, water, transportation and communication 100,449 68,500 87,472 Services 194, , ,606 Mining and quarrying 24,325 24,350 19,304 Others 48,212 30,411 31, , , ,335 Financial institutions Total gross loans and advances 1,326,125 1,120,321 1,261,159 Provision for loan impairment - specific (34,829) (36,657) (36,192) Provision for loan impairment - general (16,601) (14,612) (15,880) Reserved interest (48,648) (51,906) (47,774) Net loans and advances 1,226,047 1,017,146 1,161,313 Non performing loans 91,472 96,318 92,573 Specific provision for loan impairment and reserved interest represents 91.3% (31 March % and 31 December %) of gross non-performing loans and advances. 16

17 12 Loans and advances to customers (continued) Provision for loan impairment and reserved interest The movement on provision for loan impairment for the three months period ended 31 March 2015 is analysed in the table below: Specific General Total provision provision provision Balance at 1 January ,192 15,880 52,072 Currency translation effect on opening balance (8) - (8) Movement due to sale of India operations - (3) (3) Provided during the period (note 8) 1, ,478 Provisions released (note 8) (1,018) - (1,018) Written off during the period (2,091) - (2,091) Balance at 31 March ,829 16,601 51,430 The movement on provision for loan impairment for the three months period ended 31 March 2014 is analysed in the table below: Specific General Total provision provision Provision Balance at 1 January ,049 14,237 51,286 Currency translation effect on opening balance 52 (1) 51 Provided during the period (note 8) 1, ,894 Provisions released (note 8) (947) - (947) Written off during the period (1,015) - (1,015) Balance at 31 March ,657 14,612 51,269 The movement on reserved interest for the period is analysed as below: 31 March 31 March RO 000 RO 000 Balance at the beginning of the period 47,774 49,717 Currency translation effect on opening balance (1) 7 Reserved during the period 2,302 2,596 Released to the statement of profit or loss (407) (85) Written off during the period (1,020) (329) Balance at end of the period 48,648 51,906 The estimated fair value of loans and advances is not materially different from the carrying value of loans and advances. 17

18 13 Financial investments classified as available for sale Financial investments details are provided as follows: Fair value Fair value Fair value Carrying value Carrying value Carrying value Cost Cost Cost Marketable securities MSM Finance 2,409 2,466 2,370 2,409 2,466 2,370 1,911 1,911 1,911 Insurance Services Industrial Government bonds 44,407 68,464 44,531 44,407 68,464 44,531 43,845 67,664 43,736 47,254 71,760 47,342 47,254 71,760 47,342 46,150 70,330 46,041 Marketable securities Foreign by Sector Government securities - 7,892 9,759-7,892 9,759-7,893 9,759 Foreign shares 5,266 4,373 5,274 5,266 4,373 5,274 2,340 2,340 2,340 5,266 12,265 15,033 5,266 12,265 15,033 2,340 10,233 12,099 Unquoted and other investments Certificates of deposits 490, , , , , ,022 Treasury bills 19, , Unquoted Omani shares 1,010 1,010 1,010 1,010 1,010 1,010 Unquoted foreign shares Investment fund units 4,149 14,279 12,677 3,590 11,717 11, , , , , , ,816 Total 567, , , , , ,956 18

19 13 Financial investments (continued) Details of AFS investments are as follows: Cost of: Quoted - Foreign Government securities - 7,893 9,759 Quoted Equity and other investments 48,490 72,670 48,381 Unquoted and other investments 514, , , , , ,956 Revaluation gain of: Quoted - Equity and other securities 4,589 6,023 5, , , , Other assets Derivatives - positive mark to market 3, ,489 Prepayments and accrued income 1,819 1,684 1,649 Deferred tax asset 2,984 3,866 3,026 Acceptances 28,157 65,519 30,550 Others 1,884 1,783 1,719 38,669 73,578 39, Intangible assets Core deposits 12,306 12,306 12,306 Customer relationships 3,691 3,691 3,691 15,997 15,997 15,997 Less: amortised (6,474) (4,189) (5,903) 9,523 11,808 10,094 19

20 16 Property and equipment RO0.5m of property and equipment were added during the period (31 March 2014: RO0.2m). 17 Deposits from customers Deposits details are as follows: Current and call 1,010,127 1,174, ,732 Savings 471, , ,911 Time deposits 458, , ,780 Others 4,410 4,088 4,916 1,945,364 1,948,142 1,852,339 Maturity analysis of customer deposits as per CBO circular BM 955 is as follows: 0-6 months 793, , , months 266, , , years 143, , , years 325, , ,083 Over 5 years 415, , ,074 1,945,364 1,948,142 1,852,339 The interest rate bands of deposits are as follows: 0-2% 1,761,802 1,753,725 1,660, % 183, , , % % % - 2,944 2,882 1,945,364 1,948,142 1,852,339 20

21 18 Other liabilities Derivatives - negative mark to market 1,111 1,452 1,009 Deferred tax liability 773 1,252 1,128 Retirement benefit liability Acceptances 28,157 65,519 30,550 Tax liability 2,145 4,384 2,368 Accruals and deferred income 2,373 1,622 2,288 Obligation under finance lease 891 1,063 1,153 Others 27,914 14,381 11,788 63,874 90,243 50, Contingent liabilities, commitments and derivatives Forward forex contracts sales 121, , ,021 Forward forex contracts purchases 121, , ,670 Currency swaps - 73,575 - Interest rate swaps 91,836 95,557 91,836 Undrawn unconditionally cancellable commitments 515, , ,465 Undrawn unconditionally non-cancellable commitments 140,250 81, , ,041 1,419,981 1,147,461 As at 31 March 2015, there were certain legal suits pending against the Bank. Based on the opinion of the Bank s legal counsel, the Bank s management believes that no additional liability is expected to arise from these cases and therefore they do not consider it necessary to make any additional provisions in this regard. 21

22 20 Basis of valuation for financial assets and liabilities measured at fair value Valuation techniques At 31 March 2015 Quoted market price Using observable inputs Financial instruments carried at cost Total Level 1 Level 2 RO 000 Assets Derivatives - 3,825-3,825 Financial investments: availablefor-sale 52, ,079 1, ,676 Liabilities Derivatives - 1,111-1,111 At 31 March 2014 Assets Derivatives Financial investments: availablefor-sale 84, ,327 1, ,429 Liabilities Derivatives - 1,452-1,452 Investments carried at cost and derivatives Fair value is based on quoted market prices at the reporting date without any deduction for transaction costs. If a quoted market price is not available, fair value is estimated using pricing models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate is a market related rate for a similar instrument at the reporting date. Foreign exchange contracts are valued based on market prices. The market value adjustment of foreign exchange contracts are included in the book value of other assets. There has been no change to the basis of valuation of level 2 financial assets and liabilities disclosed in the latest audited financial statements of the Bank. 22

23 21 Asset liability mismatch The asset liability mismatch is based on CBO circular BM 955 and given as follows: Maturities Assets 31 March March December 2014 Liabilities and equity Mismatch Assets Liabilities and equity Mismatch Assets Liabilities and equity Mismatch 0-6 months 1,367, , ,506 1,464, , ,835 1,293, , , months 39, ,110 (231,373) 71, ,160 (235,815) 32, ,076 (240,355) 1-3 years 120, ,514 (22,972) 101, ,356 (24,753) 116, ,352 (25,755) 3-5 years 235, ,936 (90,359) 242, ,091 (61,022) 232, ,083 (88,892) more than 5 years 581, ,808 (132,802) 487, ,874 (249,245) 568, ,900 (130,759) 2,344,353 2,344,353-2,367,204 2,367,204-2,242,912 2,242, Exposure to credit risk Loans and advances (As per CBO) Due from banks Financial investments 31 March 31 March 31 December 31 March 31 March 31 December Individually impaired - non performing 91,472 96,318 92, Provision for loan impairment specific and reserved interest (83,477) (88,563) (83,966) Carrying amount of nonperforming 7,995 7,755 8, Past due and not impaired 16,137 23,392 11, Neither past due nor impaired 1,218,516 1,000,611 1,157, , , , , , ,151 General provision (16,601) (14,612) (15,880) Total carrying amount 1,226,047 1,017,146 1,161, , , , , , ,151 23

24 23 Share capital The share capital of the Bank is divided into 2,000,312,790 fully paid shares of RO each (31 March ,000,312,790 shares of RO each). The authorised share capital of the Bank is 7,500 million shares of RO each (31 March ,500 million of shares of RO each) Major Shareholder All those shareholders of the Bank who own 10% or more of the Bank s shares in their name, and the number of shares they hold are as follows: Number of shares Number of shares Number of shares HSBC Bank Middle East Limited 1,020,159,523 1,020,159,523 1,020,159, Reserves (a) Legal reserve In accordance with the Commercial Companies Law of Oman 1974 as amended, annual appropriations of 10% of the profit for the year are made to the legal reserve until the accumulated balance of the reserve is equal to one-third of the value of the Bank s paid-up share capital. This reserve is not available for distribution. (b) Statutory reserve Regulations issued on 30 September 2000 by the authority regulating the banking activities in India, in which certain branches operate, require the branches to appropriate 25% of their profits for the year to a statutory reserve, which is not distributable without the prior permission of the regulatory authority. An earlier regulation issued on 27 March 1989, required the branches in India to appropriate 20% of their profits to a statutory reserve until the year During the period the closing balance of statutory reserves has been transferred to retained earnings due to sale of India operations. (c) Available-for-sale fair value reserve Available-for-sale fair value reserve represents fair value changes (net of tax) in available-for-sale financial assets. (d) Foreign exchange reserve Foreign exchange reserve represents exchange differences arising from the retranslation of opening foreign currency net investments, and exchange differences arising from retranslation of the result for the reporting period from the average rate to the exchange rate prevailing at the period end, recognised in other comprehensive income. Exchange differences on a monetary item that is part of a net investment in a foreign operation are recognised in other comprehensive income. 25 Related parties and holders of 10% of the Bank s shares Holders of 10% or more of the Bank s shares may include companies, individuals, or families. Families are included if the shares of the family members total 10% or more of the Bank s shares. Members of the family of an individual are those that may be expected to influence, or be influenced by, that person in their dealings with the Bank. Related parties also include key management personnel and HSBC Group and related entities. Details are provided separately where amounts relating to an individual director and/or significant shareholder and his/her related parties are greater than 5% of the total of related party loans and advances. Others represent transactions with parties related to more than one director. 24

25 26 Related parties and holders of 10% of the Bank s shares (continued) Analysis of the related party transactions with related parties or holders of 10% or more of the Bank s shares, ('significant shareholders') or their family members during the period is as follows: Significant shareholder - HSBC and related group entities Directors Key management personnel Others Total 31 March 2015 RO 000 RO 000 Loans and advances ,967 33,967 Current, deposit and other accounts ,812 15,835 Letters of credit and guarantees ,694 8,694 Due from banks 34, ,360 Due to banks 8, ,294 For the period ended 31 March 2015 Net fee income Other operating expenses (2,941) (7) (533) (29) (3,510) Significant shareholder - HSBC and related group entities Directors Key management personnel Others Total 31 March 2014 RO 000 RO 000 Loans and advances ,693 8,693 Current, deposit and other accounts ,427 18,459 Letters of credit and guarantees ,291 9,291 Due from banks 58, ,778 Due to banks 10, ,991 For the period ended 31 March 2014 Net fee income Other operating expenses (2,631) (4) (721) (23) (3,379) Related party loans and advances bear interest at rates between 1.5% p.a. and 8% p.a. (31 March 2014: between 3% p.a. and 8% p.a.) Related party deposits bear interest at rates between 0.25% p.a. and 1.25% p.a. (31 March 2014: between 0.25% p.a. and 1.25% p.a.) 25

26 26 Operating segments The factors used to identify the Bank s reporting segment are discussed in the financial statements for the year ended 31 December Geographical areas A geographical analysis of key financial data by location of primary assets as at 31 March 2015 is set out below: Oman Others Adjustments Total 31 March 2015 RO 000 Net operating income before loan impairment charges and other credit risk provisions 18,653 (12) - 18,641 Loan impairment charges and other credit risk provisions net of recoveries (809) - - (809) Net operating income 17,844 (12) - 17,832 Total operating expenses (13,123) (187) - (13,310) Profit before tax 4,721 (199) - 4,522 Tax expense (735) (7) - (742) Profit for the period 3,986 (206) - 3,780 Loans and advances to customers (net) 1,226, ,226,047 Total assets 2,344,419 15,474 (15,540) 2,344,353 Deposits from customers 1,945, ,945,364 Total liabilities 2,041,911 4,407 (4,317) 2,042,001 A geographical analysis of key financial data by location of primary assets as at 31 March 2014 is set out below: Oman Others Adjustments Total 31 March 2014 RO 000 Net operating income before loan impairment charges and other credit risk provisions 16, ,120 Loan impairment charges and other credit risk provisions net of recoveries (231) - - (231) Net operating income 15, ,889 Total operating expenses (11,995) (267) - (12,262) Profit before tax 3,886 (259) - 3,627 Tax expense (540) - - (540) Profit for the period 3,346 (259) - 3,087 Loans and advances to customers (net) 1,017, ,017,146 Total assets 2,361,722 30,650 (25,168) 2,367,204 Deposits from customers 1,940,177 7,965-1,948,142 Total liabilities 2,063,888 12,219 (10,537) 2,065,570 Business line segment Information regarding products and services is discussed in note 4 to these unaudited condensed interim financial statements. The results of each reportable segment have been presented in the financial statements as of 31 December

27 27 Capital adequacy ratio Capital management is guided by the CBO through circular BM 1009 (Guidelines on BASEL II) and regulatory capital under BASEL III framework. Capital adequacy is calculated on quarterly intervals and reported to the CBO. The Banks are required to maintain minimum capital adequacy ratio of % including capital conservation buffer for 2015 (31 March 2014 and 31 December 2014: %) in accordance with CBO stipulated guidelines. CET 1/Tier 1 capital 281, , ,124 Tier 2 capital (T2) 17,865 16,572 17,865 Total regulatory capital 298, , ,989 Risk-weighted assets 1,678,268 1,479,421 1,639,028 CET 1 / Tier 1 capital ratio 16.75% 18.70% 17.15% Total capital ratio 17.82% 19.82% 18.24% 28 Cash and cash equivalents Unaudited interim condensed statement of financial position comprises: Cash and balances with central banks 271, , ,007 Due from banks 202, , ,902 Due to banks (32,763) (27,185) (29,966) 441, , ,943 Adjustment for items maturing after three months from date of acquisition and restricted balances (15,886) (15,887) (15,886) 426, , ,057 Cash and cash equivalent comprise: Cash and balances with central banks 255, , ,121 Due from banks 202, , ,902 Due to banks (32,763) (27,185) (29,966) Total 426, , ,057 27

28 29 Liquidity coverage ratio (LCR) Liquidity coverage ratio (LCR) is guided by the CBO through circular BM 1127 (BASEL III : Framework on Liquidity coverage ratio and LCR disclosure standards). Liquidity coverage ratio is calculated on monthly intervals and reported to the CBO. The Banks are required to maintain minimum liquidity coverage ratio of 60% for 2015 in accordance with CBO stipulated guidelines. Liquidity coverage ratio disclosure for the period ended 31 March 2015: Total Unweighted Value (average*) RO 000 Total Weighted Value (average*) RO 000 High quality liquid assets 1 Total High quality liquid assets (HQLA) - 745,838 Cash outflows 2 Retail deposits and deposits from small business customers, of which: 276,027 26, Stable deposits 27,787 1, Less stable deposits 248,240 24,824 5 Unsecured wholesale funding, of which: 1,214, , Operational deposits (all counterparties) and deposits in networks of cooperative banks Non-operational deposits (all counterparties) 1,214, , Unsecured debt Secured wholesale funding Additional requirements, of which 151,661 15, Outflows related to derivative exposures and other collateral requirements Outflows related to loss of funding on debt products Credit and liquidity facilities 151,661 15, Other contractual funding obligations Other contingent funding obligations 1,036,868 51, Total cash outflows ( ) - 603,003 Cash inflows 17 Secured lending (e.g. reverse repos) Inflows from fully performing exposures 204, , Other cash inflows Total cash inflows ( ) 204, ,719 Total Adjusted Value 21 Total HQLA 745, Total net cash outflows (16-20) 438, Liquidity coverage ratio (21/22) 170% *simple average of monthly observations over the last three months (Jan Mar 2015) 30 Corresponding figures Certain corresponding figures for 2014 have been reclassified in order to conform to the presentation for the current period. Such reclassifications have not resulted in change in prior period reported profit and equity. 28